Don't know much about history

April 3, 2011

Philosophy professor, poet, novelist and all-round wise person George Santayana must be turning over and over in his grave.

If he were still alive and teaching, he'd have to give us an F minus in History.

We seem unaware of his famous and often-quoted observation: "Those who do not learn from history are doomed to repeat it."

Especially economically, we are dooming ourselves.

In the grand scheme of things, the 1929 market crash wasn't that long ago, and the 2007 near-total crash just happened. Yet we seem to have learned little or nothing from our own recent past.

The words from a golden oldie could be our theme song: "Don't know much about history"

When Santayana died in 1952 at age 88, we were in a fairly stable economic period. Financial regulations were in place to keep Wall Street banks from the reckless excesses that led to the 1929 crash.

We were also in the middle of a 20 year period of 90 percent tax rates on incomes in the highest bracket. Revenue from this contributed mightily to the post-war recovery.

And from the early 1940s to the early 1980s, "major financial crises were conspicuously absent, while capital investment, productivity, and wages grew at rates that lifted tens of millions of working Americans into the middle class," John Cassidy reports in a November 29 New Yorker article, "What Good Is Wall Street?"

He continues:

"Since the early nineteen-eighties, by contrast, financial blowups have proliferated and living standards have stagnated. Is this coincidence? For a long time, economists and policymakers have accepted the financial industry's appraisal of its own worth, ignoring the market failures and other pathologies that plague it."

The article quotes numerous economists on how, since the early 1980s, Wall Street has focused less on financing business startups, growth and expansion, and more on buying and selling securities for their corporate clients, their stockholders and their own short term gains.

Fewer of their financial resources now go into job creation, usually under 15 percent. Most goes into dubious, hard to understand and risky Madoff-like transactions.

Economist Gerald Epstein says that all these transactions create very little value; they mainly shift money around. "They redistribute it often from taxpayers to banks and other financial institutions." Or they lose it.

As it recently reminded us again, Wall Street without regulation can become a giant black hole capable of disappearing the entire economy.

The tax-cut-create-jobs mantra is empty if not an outright lie.

Job creation doesn't automatically happen if taxes are cut. Funding must be provided for businesses to start or to grow. And this vital banking service is no longer there when the big banks are doing other things, such as their useless and reckless transactions.

The big picture is hardly encouraging. With less money circulating, with more of it ending up in a few hands, we resemble most societies in human history: autocratic, aristocratic or plutocratic, with little or no democracy.

And average folks and especially the poor are facing cuts, cuts, cuts in the basics of living, including jobs, health care, pensions and milk for babies (the WIC program).

We could reverse this negative trend. We could reinstitute regulations that had things moving in a positive direction for 40 years.

This would be good for us all, even for Wall Streeters who profit in the short term from deregulation. They've proven unable to regulate themselves so that they don't bring down the whole economy. They need an intervention for their sake and ours.

Then perhaps all of us, including the ghost of George Santayana, could rest easier.